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Wife swapping

Jia Yueting met his wife back in 2004. Then 31, Jia had just founded an internet video firm called Leshi while Gan Wei was a student at the PLA Academy of Art (where China’s first lady Peng Liyuan serves as president). The first time the two went out on a date, Jia was painfully shy and he even brought his friends along as wingmen to ease the pressure.

Jia soon won Gan over with his persistence. After dating for four years, the two married when she was just 24. Though she tried to cultivate her own film career – she was cast in supporting roles in several films – Gan was initially mostly known for being the wife of the tycoon that controlled LeEco, one of China’s biggest tech firms.

In 2015 that changed as Gan switched tack and founded the production firm LeYoung Pictures with less than Rmb10 million ($1.45 million) in start-up capital. She hit the jackpot early: her studio made the hit show Go Princess Go, which tells the story of a modern-day man travelling back in time 1,000 years to find himself trapped in the body of a royal princess (see WiC310). The show attracted over 2.6 billion views and 2.2 million paid subscribers for her husband’s online streaming site, which bought the exclusive broadcasting rights to the drama.

More recently, the high-profile couple made headlines again following the announcement last month that Gan will sell her entire 48% stake in LeYoung to Leshi, now LeEco’s listed arm in Shenzhen. The sale price is not being disclosed but Leshi said Gan is selling at a 50% discount to LeYoung’s fair value. Given a recently concluded fundraising has valued the studio at Rmb1.2 billion, Securities Daily says Gan should be getting roughly Rmb290 million in cash from Leshi.

“One could only surmise how long it took and how many Hermès handbags Jia Yueting has promised to convince his wife to sell her entire stake for such a steep discount. But then perhaps Gan Wei was just an understanding wife: she is willing to give up everything to support her husband’s listed business,” Sohu Finance opines.

Small wonder that Chinese media has now labelled Gan as “China’s Best Wife”. Still, analysts reckon that the deal is not a bad proposition for the first-time entrepreneur since she made nearly 30 times her original investment in less than two years.

Nevertheless, critics question whether there is a conflict of interest surrounding the transaction. “On the surface, the deal appears to be a win-win for both parties: Leshi acquires a high-quality asset, and for Jia’s wife, even at a 50% discount, it is not a bad proposition. But what’s important to note is that the cash has now gone from the husband’s pocket book to the wife’s. And to begin with, the money isn’t the husband’s to spend,” one broker told TMT Post, a tech portal.

Leshi’s purchase still requires the approval of the Shenzhen Stock Exchange to go ahead. Leshi claims the deal’s purpose is to blunt accusations it may have breached regulations that prohibit connected persons from engaging in businesses closely linked to those of the listed entity (i.e. its buying her content).

Jia will be hoping that the purchase goes forward smoothly. The last few months haven’t been easy for him. Since confessing publicly in November that the company he founded was “overstretched”, Jia has been working overtime to raise money to ease its cash crunch.

Already, it has slowed down its reckless expansion. The company announced in late March that it has sold a $260 million plot of land in Silicon Valley, where it had planned to build the factory for its futuristic electric supercar. Meanwhile, LeEco also announced that it wouldn’t go ahead with its $2 billion bid for US smart TV maker Vizio.

To shore up cash, LeEco has offloaded some of its property assets to Sunac, the property developer that pledged to invest $2.2 billion in the cash-strapped tech firm (see WiC352). Just last month Sunac acquired a 50% stake in an under-construction office property, namely Longshi Plaza, in Shanghai from LeEco for an undisclosed amount. The sale sounds desperate: LeEco has planned to use Longshi Plaza as its new headquarters but it is now selling its future home even before moving in.

The deal probably won’t be the last. LeEco also owns land in prime locations in Shanghai, Beijing, Chongqing and Zhejiang province that could be worth over Rmb10 billion, says Sina Finance. Sunac could use this opportunity to buy more of the distressed tech firm’s valuable land reserve.

“The deal once again gives us a clue about the thoughts behind Sun Hongbin’s [Sunac’s boss] decision to invest in LeEco,” says Sina. “When Sun decides to make this cross-sector investment, might he also have considered the deal as a real estate acquisition?”

But for Jia, it seems like when it rains, it really pours. Last week LeEco got embroiled in yet another controversy surrounding its liquidity problems. Zhou Hang, the founder of Yidao Yongche, the premium ride-on-demand company controlled by LeEco, blamed its cashflow situation on misappropriation of funds by its controlling shareholder.

Yidao was the runner-up in China’s ride-hailing market last year with a 3.6% share compared with market leader Didi Chuxing’s 94.6% (Didi merged with Uber China last year, see WiC330). Since March, Yidao’s drivers have accused the company of not paying them. Users, too, have complained that they were unable to book rides even after depositing money in advance through the app, due to the dwindling number of cars in service. Zhou says the situation is a result of Jia diverting Rmb1.3 billion belonging to Yidao to finance LeEco’s operations.

However, in a joint statement with Yidao, LeEco countered that the money in question is part of a Rmb1.4 billion syndicated loan collateralised by one of LeEco’s buildings. All parties have agreed that up to Rmb1.3 billion would go towards funding LeEco’s automobile business and the remainder was to be used for Yidao’s daily operations. Last week, Zhou, along with two other founding members of the car-hailing platform, submitted their resignations.

Industry observers say that regardless of who is in the wrong, Yidao’s cashflow problem is emblematic of LeEco’s financial distress at large. “To ease the cash crunch, LeEco has been tearing down the wall on the left to patch the wall on the right. Take LeSports. LeEco’s sports media company recently closed its Rmb8 billion Series B financing only to see all that money being sucked into its parent company’s financial black hole. The truth is, every part of LeEco desperately needs money. Such is the destiny of the entire LeEco ecosystem: first it was LeSports and now it’s Yidao,” says CBN Weekly.

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